Stocks recover from China comment; GBP pares gains as Brexit talks continue

Summary:

• Equities bounce after early weakness as China refuse to sign deal

• Mnuchin upbeat on future prospects

• Pound pares gains as Brexit talks continue

• Lira falls as Trump makes Turkish sanctions threat

• Oil.WTI falls over 3%

After an eventful end to last week it’s been a busy start to the new one for US stocks, with trade headlines remaining the main driving force on the markets. This comes as China has reportedly stated their desire for more talks ahead of signing the “initial deal” that was announced late on Friday. The deal itself was fairly underwhelming when announced late on Friday with an increase in agricultural purchases and the avoidance of a marginal increase in the rate of levies seen as the bare minimum expected from the markets. The failure to even get this agreed upon is worrying and seeing as this is “phase one” of Trump’s self proclaimed big deal, there is now serious doubts as to whether phases two and three will ever even get off the ground. 

All the major indices fell lower on this news but as the day has worn on they have recovered the bulk of the declines. One possible reason for the recovery could be an interview on CNBC from US Treasury Secretary Steve Mnuchin who made the following comments:

• China will step up agricultural purchases

• If US-China trade deal is not in place by December 15th then tariffs will be imposed - but expects a deal

• There is a fundamental agreement in principle   

• Still some issues that need to be worked out but we have every expectation that phase 1 will close   

• Deputy level call this week. Lighthizer and Mnuchin to call vice premier next week

After ending last week with the largest 2-day gain in a decade, the pound has pulled back a little in recent trade as the markets almost euphoric reaction to positive remarks from the EU on the prospect of a Brexit deal has been checked a little. Over the weekend there was some less positive noises out of Brussels with one EU diplomat stating that there was “no breakthrough yet” and another going further in claiming that today’s talks would the the “one last chance” for an agreement. Negotiations are ongoing between the two parties ahead of the EU summit which begins on Thursday and while we’re no doubt in a far more positive position than we were this time last week the latest comments are a timely reminder that nothing has been agreed upon yet.

Donald Trump reiterated via Twitter that the United States is planning to impose “big” sanctions on Turkey. However, the US President said that his country will not go to war with NATO ally. Nevertheless, the Turkish lira deepened decline on the news and the USDTRY currency pair stormed above the 5.93 handle on the news. The pair is trading at a fresh 1.5-month high but if we do not account for the flash crash from August, the pair is trading at the highest level since the beginning of June.

There’s been some sizable selling seen in the crude markets today with both Oil (-2.8%) and Oil.WTI (-3.0%) tumbling lower. The declines began in earnest when China announced that they were yet to sign a trade deal with the US and despite significant geopolitical risks as tensions in the Middle East flare up once more the market seems more focused on the demand rather than the supply side at present.